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Money Problem

Dealing with financial problems?

The Federal Government recently made some important changes to the mortgage rules for government-backed insured mortgages. These rules apply to Canadians who put down less than a 20% down payment. The new rules became law in July of 2012.

How will these new rules affect you as a potential home buyer? First, the maximum amortization period of a mortgage has been reduced from 30 years down to 25 years. Secondly, for existing homeowners, the maximum amount that can be borrowed to refinance a home drops from 85% to 80%. The practical aspect of these two changes is that your monthly mortgage payments will rise significantly.

And for you to even qualify for a mortgage, you will need to keep your debt service to income ratio at less than 40%. Debt service costs are defined as monthly mortgage payments ( principal and interest plus realty taxes) plus monthly payments on your line of credit and credit cards. See the example at the end of this article.

So if your debt level will make it more difficult to get that new mortgage then you must reduce your debt before you apply for that mortgage. The smart way to do so is by offering a Consumer Proposal to your creditors through a Proposal Administrator.

Consumer Proposals allows you to clear up your current unsecured debt by settling with your creditors for a small percentage of what you actually owe them. You stretch your payments over a multi-year period to make them manageable, and once you complete your Proposal you will be debt-free. You can then proceed to finalize your mortgage and purchase your new home without worrying about hitting that maximum debt ceiling the government has imposed with its new rules.

Please contact us at A. Farber & Partners today toll-free at 310-1100 (or by using the right form) so we can sit down with you and explain this powerful strategy to you. Our first meeting is free of charge and provides you with a no-obligation review of your situation so we can help you manage your existing debt… allowing you to prepare for a brighter future.

And if you are a mortgage broker looking for ways to assist your clients with that new home they want by qualifying for a competitive mortgage rate, please also speak with us. We would be pleased to explain how we can help you guide your clients to the purchase of their very own home.

Example:

  • The Existing situation assumes that you have to repay credit card and other debts at $1000 per month and you’d like to get a new mortgage which will cost $1000 per month in principal and interest. Your Debt Service ratio is 50% making a new mortgage almost impossible.
  • The Proposed situation show how you can achieve a Debt Service to Income ratio of 35%.If you do a Consumer Proposal you monthly debt repayment drops to $300 and this provides you with information you need to apply for a mortgage
Description Existing Proposed
Debt Repayment( Line of credit, credit cards) $ 1000 $  300
New Mortgage payment ( principal & interest) $ 1000 $ 1000
Realty Taxes $  300 $  300
Total Debt Service Costs $ 2300 $ 1600
Monthly after tax income $ 4600 $ 4600
Ratio     50%     35%